Strategies for Sustainability

Strategies for Sustainability June 4-5, 2008 Presenter: Mike Smith Social Entrepreneurs Inc. www.socialent.com

Agenda • The Context for Sustainability Planning in Stanislaus County • Key Elements of Sustainability • Resource Management: Optimizing Resources for Sustainability • Revenue Enhancement: Diversifying and Strengthening Long-Term Funding Streams • Non-Financial Elements of Sustainability • Sustaining Collaborations • Planning for Sustainability

How “Sustainability” Is Used Service providers: • “Keep my funding at 100%+ of current levels.” • “Keep my staff in place, avoid layoffs.” • “Keep my current programs going.” Funders: • “Keep the program alive after we cut or eliminate your funding.” • “Take over roles we are currently serving.” (e.g. promoting collaboration, technical assistance, evaluation)

A Preferred Definition SUSTAINABILITY:The continuation of community health or quality of life benefits over time. Center for Civic Partnerships, “Sustainability Toolkit: 10 Steps to Maintaining Your Community Improvements”, page 8

Implications of the Definition • The focus should be on sustaining positive change for children and families, not perpetuating specific programs or rigid service models • Sustainability is about much more than money – vision, leadership, relationships, community engagement, public policy and other factors are just as important

Key Questions • Sustainability of what? • To achieve what end results? • At what level of activity? • For how long?

Essential Elements for Sustainability 1. Vision 2. Results Orientation 3. Strategic Financing Orientation 4. Broad-Based Community Support 5. Key Champions 6. Adaptability to Changing Conditions 7. Strong Internal Systems 8. Sustainability Plan The Finance Project, “Sustaining Community Initiatives: Key Elements for Success”, April 2002

Impact of Organization Type: Private Nonprofits • Usually have great flexibility with respect to organization structure, fiscal strategies, staffing, partnerships, etc. • Must invest in governance and all types of internal infrastructure; leads to big variation in quality of internal infra-structure compared to public agencies • Sometimes in survival mode; can be hard to engage in long-term thinking

Impact of Organization Type: Public Agencies • Subject to policies and funding changes at multiple levels of government • Different funding mechanisms are available • Usually able to leverage infrastructure found within the governmental system • Political will to protect programs and initiatives is critical • Can have less flexibility due to legislated service “silos” and decision making processes

Impact of Program/Project Type: Single Agency • Have direct control over decisions and actions – often easier to chart a course and proceed • Management and leadership are vital; must be self-motivated to be proactive about the elements of sustainability • Can tend to think in terms of competition, not collaboration • May be limited by resources, expertise and internal infrastructure

Impact of Program/Project Type: Multi-Agency Coalition • Critical success factors are different – much more emphasis on relationships, protocols, trust and other elements than for a single agency • Complexity of everything goes up – planning, decision making, communications, coordinated action, etc. • More options are usually available for both revenue generation and cost management • Often has greater access to resources, expertise, key champions, general community support

Impact of Economic Cycles:The Obvious During economic downturns: • Funding is squeezed from all sides: government cutbacks occur, private donations often drop, foundation assets (and grant making) shrink • Demand for services often increases • Volunteerism may drop • Stress abounds on all fronts

Impact of Economic Cycles:The Not-So-Obvious • Staff turnover often increases – but can also be an opportunity to add new skills and expertise • Scarcity mentality can tear at coalitions – but can also be an opportunity to build or strengthen coalitions (“circle the wagons”) • Public scrutiny of services can intensify – can either damage or enhance the reputations of services and agencies

Impact of Economic Cycles:The Net Effect • The eight core elements of sustainability are the same for all economic cycles, but strategies may vary depending on cycle • Readiness is key – need to anticipate both risks and opportunities with economic upswings and downturns, and be ready to move quickly • Long-range planning can help smooth out the cycles

Inverted Approach to Financing Define Resource Requirements Optimize Cost Structures Develop and Diversify Revenue Sources

Defining Resource Requirements • What resources are truly necessary to produce and sustain results? • In what quantities? • Can we clearly justify the resource needs to funders and other stakeholders? • What resources do we already have available? What do we need to obtain or enhance?

Cost Management Strategies: Nine Ways to Optimize Costs • Convert fixed costs to variable costs • Change policies for expense line items • Change suppliers or ordering patterns • Streamline operations • Obtain in-kind support • Collaborate for cost sharing • Outsource (or in-source) functions/activities • Re-design the organization or components • Defer or eliminate discretionary costs

Convert Fixed Costs to Variable Costs • Variable cost = a cost that varies based on volume or level of usage • Examples • Staffing: Use contractors on a per-hour basis, use temporary staff for fluctuating administrative duties • Rent: Downsize/sub-lease space and rent special use space by day • Strategy is most appropriate if • Amount of resource needed is subject to moderate fluctuations or usage/need is declining • Unused capacity exists

Change Policies for ExpenseLine Items • Can change policies for individual types of cost • Employee benefits: Shift to defined contribution health plans, change employer contribution together with adoption of a cafeteria plan • Phone: Alter phone use or reimbursement policy • Travel: Change approval or reimbursement policy • Can change policies for how expenses are incurred, such as purchasing policies for approval/ordering of items

Change Suppliers or Ordering Patterns • Negotiate price breaks for bulk orders of high-usage items • Frequently seek better bids from other vendors • Used effectively for many expenses, including: • Supplies • Publications/materials • Telephone service • Professional services • Insurance

Streamline Operations • Look hard at where staff time is spent, to: • Optimize workflows • Eliminate activities that add little or no value • Minimize errors and re-work • Consider subsidized staffing • “Factor substitution” – is there a lower cost option to accomplish the same purpose?

Obtain In-Kind Support • Look for non-cash contributions that reduce costs: supplies, equipment, people/time (both volunteers and in-kind services), use of space • May be able to use excess business inventories in several ways • Use • Barter (trade) • Sell

Collaborate for Cost Sharing • Arrange bulk purchases at discounted rates on behalf of multiple agencies • Jointly contract for services – can work for a broad range of services (e.g. fiscal, IT, transportation, others) • Share space, equipment or staff • Do not need to be limited to collaborating with similar kinds of agencies – you can collaborate with anyone!

Outsource (or In-source) Functions/Activities • Contract out low volume or highly specialized activities; common examples are: • Specialized child/family assessments • Program evaluation • Information technology (IT) support • Human resource administration, including employee benefits administration • Conversely, if the volume/workload is rising for activities that are currently contracted out, assess whether it is now more cost-effective to bring these activities in-house

Re-Design the Organization or Components • Fundamentally re-think and re-structure staff roles • Re-design programs and services, e.g. • Change intensity of services • Consolidate programs/services • When necessary, eliminate programs/ services that are not sustainable • This is the hardest strategy to use but often has the greatest long-term impact

Defer or EliminateDiscretionary Costs • This is the typical “do without” approach • First need to separate discretionary costs, i.e. those expenditures that are not absolutely required, from mandatory costs • It is often used as the first strategy … and in fact should usually be the last option after other strategies have been considered

Prerequisites forCost Management • Accurate and timely information about current costs, including cost trends • Ability to link costs to activity and results • Understanding and commitment by staff • Willingness to change past practices • Ability to re-negotiate line item budgets with funders

Cost Management Case Studies • Sierra Valley Library & Children’s Center, Loyolton CA (Sierra County) • Shared building costs • Shared maintenance costs • Co-location of services, offering the potential for other cost sharing • Inyo County, CA • Private preschool operating on a school campus in Lone Pine

Cost Management Case Studies • Heads Up, Washington D.C. • Access underused school/classroom space • Wage subsidies for various staff positions • Kaleidoscope after-school program in Monongalia County, West Virginia • Public/private partnership where the school district provides transportation and administrative support, and nonprofits provide services for children

The First Rule of Revenue Enhancement There usually aren’t any “silver bullets”!

Dimensions of Revenue Enhancement • Alignment: Fit between agency’s mission and revenue strategies • Diversity: Variety of revenue sources, non-dependence on any source or concentration • Stability: Potential to continue and grow revenues over multiple years • Magnitude: Total dollar potential after deducting all costs required to generate the income • Control: Degree of decision-making and management influence; flexible use of funds

TraditionalFund Development Options Grants Government Funding Public Giving Service Fees Events

Sources of Grants • Private foundations • Local or regional • National • United Way • Corporate grants • Government discretionary grants • Federal • State

Special Grant Opportunities • Rural Community Facilities Grants/Loans • Limited to areas under 20,000 population • Broad use – child care, health care facilities, family resource centers, many other possibilities • Rural Health Outreach Grants • Grants and loans from financial institutions under the Community Reinvestment Act

Public Giving • Giving by individuals and families • One-time contributions • Annual campaigns • Planned giving • Memberships • Civic groups • Community foundations • Donor advised funds • Businesses

Events • Special events can raise money through • Ticket sales, registration fees • Sponsorships • Event activities, e.g. auctions • Sales of goods and services during event • Other donations from event participants • Most successful when built up over a period of years

Service Fees • Fee for service charged to service users, with or without a sliding fee scale based on income • Fees based on level of service • Example: free home visits for first-born child, fee for additional children • Service contracts • Businesses • Government

Government Funding • Entitlement programs: open-ended appropriations to pay for services to eligible people • Example: Medicaid • Formula or block grants: appropriations based on formulas that provide a fixed amount of funds to states or counties • Examples: Community Development Block Grant, Child Care Development Block Grant

Government Funding (cont’d) • General revenues • Can come from city, county or state • Special fees/taxes • State earmarked taxes – e.g. Prop 10, Prop 63 • State user fees and special programs – e.g. Children’s Trust Fund, specialty licenses • Local earmarked taxes and user fees

Specific Opportunities to Leverage Federal Funds Maximize use of existing programs: • Medi-Cal and Healthy Families reimbursements • Coverage for a broad range of medical, dental and mental health screening and treatment services • CHDP exams to draw on federal Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program funds • Women, Infants & Children (WIC) Coordination of services is the key – use state/ federally funded services where possible and use local dollars to supplement

Specific Opportunities to Leverage Federal Funds • Medi-Cal Administrative Activities (MAA) • Federal reimbursement (usually 50%) for activities necessary for the Medi-Cal program including outreach, enrollment, transportation, and program planning and policy development • Targeted Case Management (TCM) • Federal reimbursement (about 52%) to assist Medi-Cal recipients with access to necessary medical, social, educational or other services • Services eligible for TCM reimbursement include client assessment, service plan development, linkages and assistance with accessing services, crisis assistance planning and periodic review

Specific Opportunities to Leverage Federal Funds • Title IV-E Foster Care and Adoption Assistance • Federal reimbursement (50%) for administrative costs related to services to help prevent placement of young children in foster care • Eligible activities include referral to services (but not providing services), case plan development, case management, assisting with child placement, data collection and reporting, and licensing of foster care homes and institutions • Used successfully in Alameda and Santa Barbara Counties for early mental health and special needs services; could be used for other types of services

Issues in Accessing Federal Leveraging Opportunities • Must be administered by appropriate county department; community-based organizations cannot claim on their own • Must carefully design services, e.g. staff reimbursed under MAA cannot also be reimbursed under TCM • Extensive preparation, claims management, cost reporting and audit requirements exist • May have cash flow issues; payment could occur over a year after services are delivered

Opportunities to Create Local Public Revenue Streams • Dedicated sales tax • Aspen, CO (pop: 6,000) – 0.45% sales tax dedicated to child care and affordable housing • Ames, IA (pop: 48,000) - $450,000 a year for human services through 0.5% sales tax • Developer fees • Santa Cruz County + Cities of West Sacramento, Concord and San Francisco use to fund child care • Local children’s fund – designated set-aside of local property tax dollars or other funds • Oakland, San Francisco, several Florida counties use this approach successfully

Other Underused Opportunities • Targeting and tailoring for diverse groups • Win/win partnerships with businesses, public agencies and community groups • Collaborative fundraising • Engaging clients in fundraising • Leveraging large donations, e.g. matching campaigns • Service-specific funding resources

Critical Success Factors for Traditional Methods • Compelling case for support • Personal contacts and relationships • Outstanding communication skills • Perseverance – building income streams over time • Flexibility to adapt to new opportunities or changing funder priorities – “re-package” yourself as necessary

Case Studies for Traditional Methods • MAA and/or TCM claiming being used successfully in many counties in California • Truckee/Tahoe Community Foundation issued over $1.6 million in grants in 2007 • HEART program, Tulare County CA • Public/private partnership raised $400,000 in initial community donations • Then obtained $600,000 state grant with continued local fundraising for 50% match • Sustained over 10 years so far

Case Studies for Traditional Methods • Kids After School, Reno County, KS • 25% of funding from government sources, evenly split between federal and local funds • 8% from income-based service fees • 14% from United Way and other grants • 13% from events and local cash donations • 39% from in-kind support, much from public/private partnerships with schools and Parks & Recreation Department • 1% from vending machine profits

EntrepreneurialFund Development Options Social Ventures • Direct service social enterprise • Affirmative social enterprise Unrelated Business • Active for-profit venture • Passive for-profit venture …which can be pursued by • Expanding an existing venture • Launching a new venture • Acquiring an existing venture • Joint ventures

Critical Success Factors for Entrepreneurial Methods • Leadership and management skills • Choice of market opportunity • Ability to compete against other companies according to what customers value most • Quality of the business plan • Ability to implement the business plan • Flexibility – ability to adapt quickly, make prompt decisions, kill failures when needed

Strategies for Sustainability